A long-running war in the southern city of Marawi between government troops and Muslim militants is having little impact on the Philippine economy, which recorded a better-than-expected 6.5 per cent growth in the second quarter on a rebound in government spending and the farming sector.
"Marawi is not really a factor in terms of investment, not even in Mindanao, because (the crisis) is really contained in Marawi," Mr Ernesto Pernia, the government's chief economic planner, said at a news briefing yesterday.
He said martial law in Mindanao is even lifting business sentiment as it "is making businessmen feel safer and more confident about investing in Mindanao".
President Rodrigo Duterte imposed martial rule across Mindanao a day after hundreds of militants allied with the ultra-radical Islamic State in Iraq and Syria stormed Marawi on May 23.
The military said only 20 to 40 gunmen were still holed up in the now-devastated commercial centre, but that the threat remained.
Defence Secretary Delfin Lorenzana said the fighting had already cost the government three billion pesos (S$80 billion), and it might drag on for at least another month.
Mr Rajiv Biswas, IHS Markit chief Asia-Pacific economist, told Reuters that Marawi is still a "potential risk to the near-term economic outlook". But Mr Pernia insisted the fallout from the conflict has not spread to the rest of Mindanao.
Falling peso 'not a concern'
The Philippines is enjoying a construction boom, but that is also dragging the peso down. The peso has been falling since last month because of rising imports of capital goods and raw materials, setting the nation on course for its first current account deficit in 15 years. It is now at an 11-year low and on track to becoming Asia's weakest currency.
But policymakers are unperturbed. "There's really no reason for concern. It's being monitored very closely by the central bank. It's unlikely to really gyrate wildly," Manila's chief economic planner, Mr Ernesto Pernia, said yesterday. Central bank chief Nestor Espenilla said on Wednesday the current account deficit reflects a construction boom that should lead to higher growth.
President Rodrigo Duterte has unveiled a six-year, US$180 billion (S$246 billion) spending spree to build new railways and upgrade the country's creaking roads and airports to help lift growth to as much as 8 per cent during his term.
Mr Espenilla said the Philippines' good credit standing and low external debt, as well as remittances from millions of Filipinos working abroad and incomes by a burgeoning outsourcing industry should help keep the deficit at just 1 per cent of gross domestic product.
He said growth centres like Davao, Mr Duterte's home city, are thriving. Big multinational firms like Dole and Del Monte, as well as the Philippines' biggest conglomerates, have set up operations in Mindanao, home to about 22 million.
But they have stayed away from areas racked by a decades-long war between the government and Muslims trying to carve out their own region, like Marawi, one of the Philippines' poorest.
With growth at 6.5 per cent, the Philippines has the second fastest- growing economy in Asia, after China. It continues to be held up by billions worth of remittances from Filipinos working abroad and a booming outsourcing industry.
A government-led construction boom and a recovery by the farming sector from the long dry spell associated with the El Nino weather phenomenon offset a slack in private investment.
"We remain one of the best-performing economies in Asia. We are well on track to meeting our full-year target growth of 6.5 per cent to 7 per cent," said Mr Pernia.